Venezuelan President Hugo Chavez this week showed how his impulsive management style can backfire when he sowed confusion by vowing to leave the IMF, seemingly unaware that could trigger a massive debt default. The leftist, who is leading a self-styled socialist revolution and nationalizing swathes of the economy, often announces far-reaching decisions in speeches and then leaves his officials to work out how to put policy into practice. "Chavez spoke prematurely regarding withdrawal from the IMF, unaware of the full consequences of these actions," said ABN AMRO, one of several banks that urged a cautious approach after Chavez's announcement. Chavez, who has long criticized the International Monetary Fund as a capitalist institution in the service of Washington, slipped the unexpected announcement into a lecture on Monday and demanded the withdrawal be formalized immediately after his speech. Two days later, Finance Minister Rodrigo Cabezas could not explain how Venezuela would quit the IMF without defaulting on as much as $21 billion of debt as investors fear.
Clauses in sovereign issues mean much of Venezuela's debt will be in technical default if it leaves the IMF, allowing investors to demand the government pay them back immediately. Cabezas sought to reassure investors by pledging that Venezuela would continue payments and saying that no withdrawal date had been set. But on Thursday, he reiterated that Venezuela planned to quit the 185-nation Fund.